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Should You Avoid Carter’s, Inc. (CRI)?

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 750 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Carter’s, Inc. (NYSE:CRI) in this article.

Is Carter’s, Inc. (NYSE:CRI) a healthy stock for your portfolio? Investors who are in the know are in a pessimistic mood. The number of long hedge fund bets fell by 3 in recent months. Our calculations also showed that CRI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

AQR CAPITAL MANAGEMENT

Cliff Asness of AQR Capital Management

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s take a look at the latest hedge fund action surrounding Carter’s, Inc. (NYSE:CRI).

How have hedgies been trading Carter’s, Inc. (NYSE:CRI)?

Heading into the fourth quarter of 2019, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of -12% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CRI over the last 17 quarters. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Valinor Management, managed by David Gallo, holds the number one position in Carter’s, Inc. (NYSE:CRI). Valinor Management has a $49.6 million position in the stock, comprising 3.4% of its 13F portfolio. The second largest stake is held by Ric Dillon of Diamond Hill Capital, with a $43.6 million position; 0.2% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors with similar optimism comprise Bernard Horn’s Polaris Capital Management, Cliff Asness’s AQR Capital Management and Gregg Moskowitz’s Interval Partners. In terms of the portfolio weights assigned to each position Valinor Management allocated the biggest weight to Carter’s, Inc. (NYSE:CRI), around 3.36% of its 13F portfolio. Polaris Capital Management is also relatively very bullish on the stock, dishing out 1.67 percent of its 13F equity portfolio to CRI.

Due to the fact that Carter’s, Inc. (NYSE:CRI) has faced bearish sentiment from the aggregate hedge fund industry, we can see that there is a sect of funds that slashed their entire stakes heading into Q4. Intriguingly, Dmitry Balyasny’s Balyasny Asset Management dumped the biggest stake of all the hedgies followed by Insider Monkey, valued at an estimated $9.6 million in stock, and Robert Pohly’s Samlyn Capital was right behind this move, as the fund sold off about $2.6 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 3 funds heading into Q4.

Let’s go over hedge fund activity in other stocks similar to Carter’s, Inc. (NYSE:CRI). We will take a look at LendingTree, Inc (NASDAQ:TREE), Cushman & Wakefield plc (NYSE:CWK), FirstService Corporation (NASDAQ:FSV), and Solaredge Technologies Inc (NASDAQ:SEDG). All of these stocks’ market caps are similar to CRI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TREE 21 84892 -7
CWK 10 156714 -4
FSV 12 163650 2
SEDG 20 220192 -3
Average 15.75 156362 -3

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.75 hedge funds with bullish positions and the average amount invested in these stocks was $156 million. That figure was $206 million in CRI’s case. LendingTree, Inc (NASDAQ:TREE) is the most popular stock in this table. On the other hand Cushman & Wakefield plc (NYSE:CWK) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Carter’s, Inc. (NYSE:CRI) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on CRI as the stock returned 13.3% during the first two months of Q4 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

Disclosure: None. This article was originally published at Insider Monkey.

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